Constructive on U.S. Housing

A new development is catching home buyers off guard as the spring sales season gets under way: Bidding wars are back.

From California to Florida, many buyers are increasingly competing for the same house. Unlike the bidding wars that typified the go-go years and largely reflected surging sales, today's are a result of supply shortages....

Competitive bidding in the current environment isn't producing huge price increases or leaving sellers with hefty profits, as occurred during the housing boom. Still, the bidding wars caused by tight inventory provide the latest evidence that housing demand is starting to pick up after a six-year-long slump.

An index that measures the number of contracts signed to purchase previously owned homes rose in March to its highest level in nearly two years, up 12.8% from a year ago and 4.1% from February, the National Association of Realtors reported on Thursday.

"We very much believe we've hit bottom," said Ivy Zelman, chief executive of a research firm, who was among the first to warn of a downturn seven years ago. Earlier this week, she raised her home-price forecast for the year, calling for a 1% annual gain, up from a 1% decline....

Inventory levels in many markets were at the lowest level in years. At the current pace of sales, it would take just 1.5 months to sell all the homes listed in Sacramento, Calif., and 2.4 months to sell all the homes listed in Phoenix. San Francisco and Washington, D.C., each have 3.4 months of supply, while Miami has 4.1 months of supply.

I continue to hold to the variant view that the emerging and durable recovery in the U.S. housing market will be one of the biggest economic stories in the next 12 months (and beyond).

Too many are reacting to the bad, backward-looking Case-Shiller data. (The index has a two- to three-month lag and 30% of its transactions are distressed, so it will be under pressure for now.) Driving your car while looking in the rearview mirror is fine if the road is straight and clear, but it's not such a good idea when the road is curved and rife with obstacles. And the U.S. housing market is nothing if not a long, winding and bumpy road.

The real story is that the U.S. home market is now bifurcated (historically, a signal of a nascent recovery), stress pricing has stabilized, new-home prices are going up and so are existing-home prices (none distressed). As The Wall Street Journal article above indicates, inventory is being cleared.